-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PRD+lpyN/h5KJw+ssMC47pYyiDngnY+1K93koq01QAjyHj2fCmeimL7rGLACR9KU 8vnkpRiufyYT3MfkeVtzsg== 0000889697-98-000126.txt : 19980324 0000889697-98-000126.hdr.sgml : 19980324 ACCESSION NUMBER: 0000889697-98-000126 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980323 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AGREE REALTY CORP CENTRAL INDEX KEY: 0000917251 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 383148187 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12928 FILM NUMBER: 98570948 BUSINESS ADDRESS: STREET 1: 31850 NORTHWESTERN HGWY CITY: FARMINGTON HILLS STATE: MI ZIP: 48334 BUSINESS PHONE: 8107374190 MAIL ADDRESS: STREET 1: 31850 NORTHWESTERN HIGHWAY CITY: FARMINGTON HILLS STATE: MI ZIP: 48334 10-K 1 ============================================================================= UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------- FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission File Number 1-12928 -------------------- AGREE REALTY CORPORATION (Exact name of registrant as specified in its charter) Maryland 38-3148187 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 31850 Northwestern Highway, (248) 737-4190 Farmington Hills, Michigan 48334 Registrant's telephone number, (Address of principal executive offices) included area code: --------- Securities Registered Pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ Common Stock, $.0001 par value New York Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: None (Title of Class) --------- Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. __X__ Shares of common stock outstanding as of March 13, 1998: 4,346,313. The aggregate market value of the Registrant's shares of common stock held by non-affiliates on such date was approximately $94,260,663. DOCUMENTS INCORPORATED BY REFERENCE Document Incoroprated into Form 10-K -------- --------------------------- Portions of the Registrant's Proxy Statement Part III for its Annual Meeting of Shareholders Items 10-13 to be held on May 11, 1998 ============================================================================= TABLE OF CONTENTS Part I Page Numbers ------- Item 1. Business 3 Item 2. Properties 6 Item 3. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 14 Item 6. Selected Financial Data 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 7A Quantitative and Qualitative Disclosures About Market Risk 22 Item 8. Financial Statements and Supplementary Data 22 Item 9. Changes and Disagreements With Accountants on Accounting and Financial Disclosure 22 Part III Item 10. Directors and Executive Officers of the Registrant 22 Item 11. Executive Compensation 22 Item 12. Security Ownership of Certain Beneficial Owners and Management 22 Item 13. Certain Relationships and Related Transactions 22 Part IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K 23 Signatures 25 -2- PART 1 This Form 10-K, together with other statements and information publicly disseminated by the Company, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Risks and other factors that might cause such a difference include, but are not limited to, the effect of economic and market conditions; risks that the Company's acquisition and development projects will fail to perform as expected; financing risks, such as the inability to obtain debt or equity financing on favorable terms; the level and volatility of interest rates; loss or bankruptcy of one or more of the Company's major retail tenants; and failure of the Company's properties to generate additional income to offset increases in operating expenses, as well as other risks listed herein under Item 1. Business and from time to time in the Company's reports filed with the Securities and Exchange Commission or otherwise publicly disseminated by the Company. References herein to the "Company" include Agree Realty Corporation, together with its wholly-owned subsidiaries and its majority owned partnership, Agree Limited Partnership (the "Operating Partnership"), unless the context otherwise requires. Item 1. BUSINESS General The Company is a self-administered, self-managed real estate investment trust (a "REIT") which develops, acquires, owns and operates properties which are primarily leased to major national and regional retail companies under net leases. As of December 31, 1997, the Company owned, either directly or through interests in joint ventures, a portfolio of 34 properties located in 12 states and containing an aggregate of approximately 3.1 million square feet of gross leasable area ("GLA"). The Properties consist of 13 neighborhood and community shopping centers and 21 free-standing properties. As of December 31, 1997, approximately 98% of GLA in the Portfolio was leased, and approximately 93% of the Company's base rental income was attributable to national and regional retailers. Such retailers include Kmart Corporation ("Kmart"), Borders, Inc. ("Borders"), Roundy's Inc. ("Roundy's"), Walgreen Co. ("Walgreen") and Fashion Bug (Charming Shoppes, Inc.) which, as of December 31, 1997, collectively represented approximately 73% of current base rental income. The Company was the developer of all 13 of the shopping centers and 16 of the 21 free-standing properties. The Company was formed in December 1993 to continue and expand the retail property business founded in 1971 by its current Chairman of the Board of Directors and President, Richard Agree. Since 1971, the Company and its predecessors have specialized in building properties to suit for national and regional retailers who have signed long-term net leases prior to commencement of construction. The Company believes that -3- this strategy provides it with a predictable source of income from primarily national and regional retail tenants in its existing properties and also provides opportunities for development of additional properties at attractive returns on investment, without the lease-up risks inherent in speculative development. During May and June 1997, the Company completed a follow-on offering of 1,653,850 shares of common stock which netted proceeds of $31.9 million to the Company. The Company used the proceeds of the offering to reduce outstanding indebtedness. The Company's headquarters are located at 31850 Northwestern Highway, Farmington Hills, MI 48334 and its telephone number is (248) 737-4190. Objectives and Strategies Objectives The Company's primary objectives are (i) to realize steady and predictable cash flows through the ownership of high quality properties leased primarily to national and regional retailers, and (ii) to increase Funds from Operations through the development or acquisition of additional properties. The Company presently intends to achieve these objectives by implementing the growth, operating and financial strategies outlined below. Growth and Operating Strategies In seeking to attain these objectives, the Company has applied and intends to continue to apply the same strategies that have guided its principals during the past twenty-seven years. These strategies include the following: o Developing or acquiring each property with the objective of holding it for long-term investment value. o Developing or acquiring properties in what the Company considers attractive long-term locations. Such locations typically have (i) convenient access to transportation arteries with traffic count that is higher than average for the local market; (ii) concentrations of other retail properties and (iii) demographic characteristics which are attractive to the retail tenant which will lease the property upon completion. o Generally, purchasing land and beginning development of a property only upon the execution of a lease with a national or regional retailer on terms that provide a return on estimated cost which is attractive relative to the Company's cost of capital. o Directing all aspects of development, including construction, design, leasing and management. Property management and the majority of its leasing activities are handled directly by Company personnel. The Company believes that this approach to development and management enhances the ability of the Company to develop and maintain assets of high construction quality which are designed, leased and maintained to maximize long-term value and enables it to operate efficiently. -4- The Company believes that the relationships established by its principals with national and regional retailers as well as the financing relationships its principals have developed with lenders provide it with an advantage in achieving its objectives. Financing Strategy As of December 31, 1997, the Company's ratio of indebtedness to market capitalization was 38%. The Company intends to maintain a ratio of total debt (including construction and acquisition financing) to market capitalization of 65% or less. The Company plans to begin construction of additional pre-leased developments and may acquire additional properties that will initially be financed by its Credit Facility and Line of Credit (each as hereinafter defined). Management intends to periodically refinance short-term construction and acquisition financing with long-term debt and /or equity. Upon completion of refinancing, the Company intends to lower the ratio of total debt to market capitalization to 50% or less. Nevertheless, the Company may operate with debt levels or ratios that are in excess of 50% for extended periods of time prior to such refinancing. The Company may from time to time re-evaluate its borrowing policies in light of then current economic conditions, relative costs of debt and equity capital, market value of properties, growth and acquisition opportunities and other factors. However, there is no contractual limit on the Company's ratio of debt to total market capitalization and, accordingly, the Company may modify its borrowing policy and may increase or decrease its ratio of debt to market capitalization. Tax Status The Company has operated and intends to operate in a manner to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). In order to maintain qualification as a REIT, the Company must distribute at least 95% of its real estate investment trust income and meet certain other asset and income tests. Additionally, ownership of the Company, directly or constructively, by any single person is limited to 9.8% of the total number of outstanding shares, subject to certain exceptions. As a REIT, the Company is not subject to federal income tax with respect to that portion of its income that meets certain criteria and is distributed annually to the stockholders. Competition The Company faces competition in seeking properties for acquisition and tenants who will lease space in these properties from insurance companies, credit companies, pension funds, private individuals, investment companies and other REITs, many of which have greater financial and other resources than the Company. There can be no assurance that the Company will be able to successfully compete with such entities in its development, acquisition and leasing activities in the future. -5- Potential Environmental Risks Investments in real property create a potential for environmental liability on the part of the owner or operator of such real property. If hazardous substances are discovered on or emanating from any of the Properties, the owner or operator of the property (including the Company) may be held strictly liable for all costs and liabilities relating to such hazardous substances. The Company has had a Phase I environmental study (which involves inspection without soil sampling or ground water analysis) conducted on each Property by independent environmental consultants. Furthermore, the Company has adopted a policy of conducting a Phase I environmental study on each property it acquires. The Phase I environmental studies conducted by the Company have not revealed the existence of any hazardous substance or environmental liability on the Properties. In addition, the management of the Company has no reason to believe that any hazardous substances exist on such Properties in violation of any applicable laws; however, no assurance can be given that such substances are not located on any of the Properties. The Company presently carries no insurance coverage for the types of environmental risks described above. The Company believes that it is in compliance, in all material respects, with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. The Company has not been notified by any governmental authority of any noncompliance, liability or other claim in connection with any of the Properties. Employees As of March 15, 1998, the Company employed eight persons. Employee responsibilities include accounting, construction, leasing, property coordination and administrative functions for the Properties. The Company's employees are not covered by a collective bargaining agreement and the Company considers its employee relations to be satisfactory. Item 2. PROPERTIES The Properties consist of 13 neighborhood and community shopping centers and 21 free-standing properties. As of December 31, 1997, approximately 98% of GLA in the Portfolio was leased, and approximately 93% of the Company's base rental income was attributable to, national and regional retailers. Such retailers include Kmart, Borders, Roundy's, Walgreen and Fashion Bug which, at December 31, 1997, collectively represented approximately 73% of current base rental income. A substantial portion of the Company's income consists of rent received under net leases. Most of the leases provide for the payment of fixed base rentals monthly in advance and for the payment by tenants of a pro rata share of the real estate taxes, insurance, utilities and common area maintenance of the shopping center as well as payment to the Company of a percentage of such tenant's sales. However the payments of percentage rents to the Company historically have not been material and the Company does not anticipate that they will become material in the future. Although a majority of the leases require the Company to make roof and structural repairs, as needed, a number of leases place that -6- responsibility on the tenant. The Company's management places a strong emphasis on sound construction and maintenance on its properties. Location of Properties in the Portfolio
Total Gross Percent of Number of Leasable Area GLA Leased on State Properties (Sq. feet) December 31, 1997 ----- ---------- ------------- ----------------- California 1 38,015 100% Florida 5 (1) 487,269 93 Indiana 1 (1) 15,844 100 Illinois 1 20,000 100 Kansas 2 45,000 100 Kentucky 1 135,009 100 Michigan 12 (1) 1,563,663 99 Nebraska 2 (1) 55,000 100 Ohio 2 108,543 100 Oklahoma 3 (1) 74,282 100 Pennsylvania 1 37,004 100 Wisconsin 3 523,036 99 -- --------- --- Total/Average 34 3,102,665 98% -- --------- --- - ------------ (1) Includes Joint Venture Properties in which the Company owns interests ranging from 8 to 20%.
Annualized Base Rent of the Company's Properties The following is a breakdown of Base Rents in place at December 31, 1997 for each type of retail tenant:
Percent of Annualized Annualized Type of Tenant Base Rent (1) Base Rent -------------- ------------- ---------- National (2) $14,185,514 82% Regional (3) 1,882,863 11 Local 1,280,476 7 ----------- --- Total $17,348,853 100% ----------- --- - -------------------- (1) Includes the Company's share of annualized base rent for each of the Joint Venture Properties. (2) Includes the following national tenants: Kmart, Borders, Fashion Bug, Winn Dixie, Rite Aid, JC Penney, Avco Financial, GNC Group, Radio Shack, On Cue, Super Value, Maurices, Petrie Stores, Walgreen, Payless Shoes, Food Lion, Blockbuster Video, Sears, A&P, TGI Friday's and Circuit City. (3) Includes the following regional tenants: Roundy's, Dunham's Sports, Brauns Fashions and Hollywood Video.
-7- Community Shopping Centers Thirteen of the Company's properties are community shopping centers ranging in size from 20,000 to 228,476 square feet of GLA. The centers are located in 5 states as follows: Florida (2), Illinois (1), Kentucky (1), Michigan (6) and Wisconsin (3). The location, general character and primary occupancy information with respect to the community shopping centers at December 31, 1997 are set forth below: Summary of Community Shopping Centers at December 31, 1997
(2) (3) (4) Total (1) Average Percent Percent Year Land Leasable Annualized Base Leased at Occupied Anchor Tenants Completed/ Area Area Base Rent per at Dec 31, at Dec 31, (Lease expiration/ Property Location Expanded (acres) (Sq. Ft.) Rent Sq. Ft. 1997 1997 Option expiration) - -------------------------------------------------------------------------------------------------------------------------- Capital Plaza 1978/ 11.58 135,009 $405,268 $3.00 100% 100% Kmart (2003/2053) Frankfort, KY 1991 Winn Dixie (2010/2035) Fashion Bug (2004/2024) Charleviox Commons 1991 14.79 137,375 650,995 4.81 99% 72% Kmart (2015/2065) Charlevoix, MI Roundy's (2011/2031) Chippewa Commons 1991 16.37 168,311 909,783 5.41 100% 100% Kmart (2014/2064) Chippewa Falls, WI Roundy's (2011/2031) Fashion Bug (2001/2021) Iron Mountain Plaza 1991 21.20 176,352 822,033 4.81 97% 77% Kmart (2015/2065) Iron Mountain, MI Roundy's (2011/2031) Fashion Bug (2002/2022) Ironwood Commons 1991 23.92 185,535 943,754 5.09 100% 100% Kmart (2015/2065) Ironwood, MI Super Value (2011/2036) J.C. Penney Co. (2006/2026) Fashion Bug (2002/2022) Marshall Plaza 1990 10.74 119,279 623,055 5.31 98% 98% Kmart (2015/2065) Marshall, MI Fashion Bug (2002/2022) North Lakeland Plaza 1987 16.67 171,334 1,280,893 7.48 100% 100% Kmart (2011/2061) Lakeland, FL Best Buy (2013/2028) -8- Summary of Community Shopping Centers at December 31, 1997 (continued) (2) (3) (4) Total (1) Average Percent Percent Year Land Leasable Annualized Base Leased at Occupied Anchor Tenants Completed/ Area Area Base Rent per at Dec 31, at Dec 31, (Lease expiration/ Property Location Expanded (acres) (Sq. Ft.) Rent Sq. Ft. 1997 1997 Option expiration) - ----------------------------------------------------------------------------------------------------------------------- Petoskey Town Center 1990 22.08 174,870 917,928 5.64 93% 93% Kmart (2015/2065) Petoskey, MI Roundy's (2010/2030) Fashion Bug (2002/2022) Plymouth Commons 1990 16.30 162,031 856,369 5.40 98% 98% Kmart (2015/2065) Plymouth, WI Roundy's (2010/2030) Fashion Bug (2001/2021) Rapids Associates 1990 16.84 173,557 978,257 5.64 100% 100% Kmart (2015/2065) Big Rapids, MI Roundy's (2010/2030) Fashion Bug (2001/2021) Shawano Plaza 1990 17.91 192,694 972,079 5.14 98% 98% Kmart (2014/2064) Shawano, WI Roundy's (2010/2030) J.C. Penney Co. (2005/2025) Fashion Bug (2001/2021) West Frankfort Plaza 1982 1.45 20,000 105,225 5.26 100% 100% Fashion Bug (1997/2007) West Frankfort, IL Winter Garden Plaza 1988 22.34 228,476 1,120,348 5.70 86% 64% Kmart (2013/2063) Winter Garden, FL Food Lion (2009/2029) Sears Roebuck & Co. (2000/2010) ------ --------- ----------- ----- --- --- Total/Average 212.19 2,044,823 $10,585,987 $5.33 97% 91% ====== ========= =========== ===== === === (1) Total annualized base rents of the Company as of December 31, 1997 (2) Calculated as total annualized base rents, divided by GLA actually leased as of December 31, 1997 (3) Roundy's does not currently occupy the space it leases at Iron Mountain Plaza (35,285 square feet, rented at a rate of $5.87 per square foot) and Charlevoix Commons (35,896 square feet, rented at a rate of $5.97 per square foot). Both of these leases expire in 2011 (assuming they are not extended by Roundy's). Sears, Roebuck & Co. leases but does not currently occupy, the 50,000 square feet it leases at Winter Garden Plaza. This lease expires in 2000 (assuming that it is not extended by Sears) and is rented at a rate of $5.00 per square foot. (4) All community shopping centers except Capital Plaza (which is subject to a long-term ground lease expiring in 2053 from a third party) are wholly-owned by the Company.
-9- Free-Standing Properties Twenty-one (21) of the Properties are free-standing properties net leased to either A&P (1), Borders (15), Circuit City Stores (1), Kmart (3) or Walgreen (1), which in the aggregate comprise approximately 1,000,000 square feet. The free-standing properties range in size from 13,905 to 226,000 square feet of GLA and are located in the following states: California (1), Florida (3), Indiana (1), Kansas (2), Michigan (6), Nebraska (2), Ohio (2), Oklahoma (3) and Pennsylvania (1). Included in the Company's 21 retail properties are seven Joint Venture Properties in which the Company owns interests ranging from 8% to 20% and 14 wholly-owned Properties. The Company's fourteen (14) wholly owned free-standing Properties provide $6,068,547 of annualized base rent at an average base rent per square foot of $10.00 during the 12 months ended December 31, 1997. The Company (or the joint ventures in which the Company has an interest) own each of the twenty one (21) free-standing properties in fee, except as indicated below. The location, general character and primary occupancy information with respect to the wholly-owned free-standing properties are set forth in the following table: Wholly-Owned Free Standing Properties
Year Lease expiration Tenant/Location Completed Total GLA (Option expiration) - --------------- --------- --------- ------------------- A&P, Roseville, MI 1977 104,000 May 21, 2002 (2022) Borders, (1) Aventura, FL 1996 30,000 Jan 31, 2016 (2036) Borders, Columbus, OH 1996 21,000 Jan 23, 2016 (2036) Borders, Monroeville, PA 1996 37,004 Nov 8, 2016 (2036) Borders, Norman, OK 1996 24,641 Sep 20, 2016 (2036) Borders, Omaha, NE 1995 30,000 Nov 3, 2015 (2035) Borders, Santa Barbara, CA 1995 38,015 Nov 17, 2015 (2035) Borders, Wichita, KS 1995 25,000 Nov 10, 2015 (2035) Borders, (1) Lawrence, KS 1997 20,000 Nov 21, 2020 (2040) Circuit City Stores Boynton Beach, FL 1996 32,459 Dec 15, 2016 (2036) Kmart, Grayling, MI 1984 52,320 Sep 30, 2009 (2059) Kmart, Oscoda, MI 1984 90,470 Sep 30, 2009 (2059) Kmart, (1) Perysburg, OH 1983 87,543 Oct 31, 2008 (2058) Walgreen, Waterford, MI 1997 13,905 Feb 28, 2018 (2058) ------- Total 606,357 ------- (1) These properties are subject to long-term ground leases where a third party owns the underlying land and has leased the land to the Company to construct or operate three free-standing properties. The Company pays rent for the use of the land and generally is responsible for all costs and expenses associated with the building and improvements. At the end of the lease terms, as extended (Aventura, FL 2036, Lawrence, KS 2027 and Perrysburg, OH 2038), the -10- land together with all improvements revert to the land owner. The Company has an option to purchase the Perrysburg property during its lease term. The Company has an option to purchase the Lawrence property during the period October 1, 2006 to September 30, 2016.
Joint Venture Properties During 1996, the Company developed or acquired seven free-standing Properties which are leased to Borders, including Borders' corporate headquarters, its central administrative building and Properties operated as Borders Books and Music. Each of these Properties is owned by a separate limited liability company or a limited partnership that is owned jointly by the Company and an affiliate of Borders. The Company's economic interest in the Joint Ventures ranges from 8% to 20%. The financing for the development of the Joint Venture Properties was provided through a financing facility established by Borders and its affiliates (the "Borders Financing Facility"). The lease between Borders and each of the Joint Ventures has a term expiring November 21, 2000, unless the Borders Financing Facility is extended or earlier terminated. At any time during the term of the lease, Borders has the right to refinance the Property or to purchase the Property for various percentages of total project costs, provided that, prior to such refinancing or purchase, the Company may elect to provide alternative financing for the Property or purchase the Property and purchase the interest of the Borders' affiliate in the Joint Venture. In the event the Company elects to provide financing or to purchase the Property, and is subsequently unable to obtain the requisite financing, or in the event that the Company defaults in its development obligations to the Joint Venture, Borders may purchase the Property. If the Company provides refinancing or purchases the Property, the Company will be required to acquire the interest of the Borders' affiliate in the Joint Venture, and Borders and the Joint Venture will enter into a new lease providing for a term of 20 years, with four five-year extension options. Under certain circumstances, the Company may elect to allow Borders to place long-term financing on such Properties, in which case, the Company will maintain its current interest in the Joint Venture and become the sole equity member of the entity which owns such Property. In such a circumstance, the Company will own the Property subject to a first mortgage loan which could exceed 90% of the Property's estimated value, and lease payments received by the Company would be adjusted to reflect Borders' financing. Prior to one of the financing transactions discussed above, the Company's investment in the seven Joint Venture properties is expected to provide in excess of $600,000 annualized base rent. Of this amount, the Company estimates that approximately $116,000 is variable based on short-term financing. Under certain circumstances relating to refinancing of such assets, the rents paid pursuant to such leases are subject to adjustment. The following table provides additional information on the Joint Venture Properties. -11- Joint Venture Properties
The Company's Tenant / Location Interest Total GLA Lease Expirations - ----------------- ------------- --------- ----------------- Borders, Inc. Ann Arbor, MI 11% 110,000 November 21, 2000 Borders, Inc. Ann Arbor, MI 8% 226,000 November 21, 2000 Borders, Inc. Boynton Beach, FL 12% 25,000 November 21, 2000 Borders, Inc. Indianapolis, IN 8% 15,844 November 21, 2000 Borders, Inc. Oklahoma City, OK 20% 24,641 November 21, 2000 Borders, Inc. Omaha, NE 18% 25,000 November 21, 2000 Borders, Inc. Tulsa, OK 15% 25,000 November 21, 2000 ------- Total 451,485 -------
Major Tenants The following table sets forth certain information with respect to the Company's major tenants:
Annualized Base Percent of Total Number Rent as of Annualized Base Rent as of Leases December 31, 1997 of December 31, 1997 --------- ----------------- ----------------------- Kmart 15 $ 5,317,602 31% Borders 15 4,427,180 (1) 26 Roundy's 7 1,730,063 10 Walgreen 4 604,733 3 Fashion Bug (Charming Shoppes) 10 573,420 3 -- ----------- -- Total 51 $12,652,998 73% -- ----------- -- - -------------- (1) Includes the Company's share of base rent for each of the Joint Venture Properties
Fifteen of the Properties are anchored by Kmart, a publicly-traded retailer with over 2,100 stores. Kmart's principal business is general merchandise retailing through a chain of department stores and it is one of the world's largest retailers based on sales volume. The Company derived approximately 31% of its base rental income for the year ended December 31, 1997 from, and approximately 38% of the Company's future minimum rentals are attributable to, Kmart. Borders Group, Inc. ("BGI"), a publicly-traded company, is the second largest retailer of book superstores and the largest operator of mall-based bookstores in the United States based on sales and number of stores. Two of BGI's subsidiaries, Borders, Inc. and Walden Books Co., Inc. together operate in over 1,000 locations. The Company derived approximately 26% of its base rental income for the year ended December 31, 1997 from, and approximately 31% of the Company's future minimum rentals are attributable to, Borders. -12- Roundy's and its subsidiaries are engaged principally in the wholesale distribution of food and non-food products to supermarkets and warehouse food stores. The Company derived approximately 10% of its base rental income for the year ended December 31, 1997 from, and approximately 11% of the Company's future minimum rentals are attributable to, Roundy's. Walgreen is a leader of the U.S. chain drugstore industry and operates over 2,350 stores nationwide. The Company derived approximately 3% of its base rental income for the year ended December 31, 1997 from, and approximately 3% of the Company's future minimum rentals are attributable to, Walgreen. Charming Shoppes, Inc. operates, through its subsidiaries, a chain of women's specialty clothing stores in over 40 states. Its retail properties operate under the names Fashion Bug and Fashion Bug Plus. The Company derived approximately 3% of its base rental income for the year ended December 31, 1997 from, and approximately 1% of the Company's future minimum rentals are attributable to, Charming Shoppes, Inc. Lease Expirations The following table shows lease expirations for the next 10 years for the Company's community shopping centers and wholly-owned free-standing properties, assuming that none of the tenants exercise renewal options.
December 31, 1997 Gross Lesable Area Annualized Base Rent ------------------ -------------------- Number Expiration of Leases Square Percent Percent Year Expiring Footage of Total Amount of Total - ---------- --------- ------- -------- ------ -------- 1998 17 69,450 2.62% $ 463,762 2.78% 1999 5 26,100 .98 172,100 1.03 2000 11 136,630 5.15 942,622 5.66 2001 27 110,614 4.17 919,798 5.52 2002 16 180,390 6.80 963,032 5.78 2003 13 125,092 4.72 592,375 3.56 2004 1 4,800 .18 33,600 .20 2005 2 34,204 1.29 131,714 .79 2006 2 31,204 1.18 155,265 0.93 2007 1 2,000 .09 18,000 0.12 -- ------- ----- ---------- ----- Total 95 720,484 27.18% $4,392,268 26.37% -- ------- ----- ---------- -----
Leases on the seven Joint Venture Properties are for an initial term through November 2000. In the event a refinancing is consummated, Borders is required to enter into a twenty year net lease with a fixed lease rate. -13- Item 3. LEGAL PROCEEDINGS The Company is not presently involved in any litigation nor, to management's knowledge, is any litigation threatened against the Company, except for routine litigation arising in the ordinary course of business which is expected to be covered by the Company's liability insurance. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of 1997. Part II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the New York Stock Exchange under the symbol ADC. The following table sets forth the high and low sales prices of the Company's Common Stock, as reported on the New York Stock Exchange Composite Tape, and the dividends declared per share of Common Stock by the Company for each calendar quarter in the last two fiscal years. Dividends were paid in the periods immediately subsequent to the periods in which such dividends were declared.
Market Information - ------------------ Dividends Per High Low Common Share ---- --- ------------ Quarter Ended March 31, 1996 $18.250 $14.500 $0.45 June 30, 1996 $18.875 $16.500 $0.45 September 30, 1996 $19.750 $17.500 $0.45 December 31, 1996 $21.500 $18.750 $0.45 March 31, 1997 $22.250 $19.500 $0.45 June 30, 1997 $21.125 $19.000 $0.45 September 30, 1997 $22.063 $19.813 $0.46 December 31, 1997 $21.875 $20.313 $0.46
At December 31, 1997, there were 4,328,980 shares of the Company's Common Stock issued and outstanding which were held by approximately 245 stockholders of record. The stockholders of record do not reflect persons or entities who held their shares in nominee or "street" name. The Company intends to continue to declare quarterly dividends to its stockholders. However, distributions by the Company are determined by the Board of Directors and will depend on a number of factors, including the amount of Funds from Operations, the financial and other condition of its properties, its capital requirements, the annual distribution requirements under the provisions of the Code applicable to REITs and such other factors as the Board of Directors deems relevant. During the year ended December 31, 1997, there were no sales of unregistered securities by the Company, except the grant under the Company's 1994 Stock Incentive Plan of 28,955 shares of restricted stock to certain employees of the Company. Such shares vest in equal annual installments over a five-year period from the date of the grant, but entitle the holder thereof to receive dividends from the date of the grant. -14- Item 6. SELECTED FINANCIAL DATA The following table sets forth selected financial information for the Company and the Agree Predecessors on a historical basis and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and all of the financial statements and notes thereto included elsewhere in this Form 10-K. The balance sheet data for the periods ended December 31, 1993 through December 31, 1997 and operating data for for each of the periods presented were derived from the audited financial statements of the Company and the Agree Predecessors.
(In thousands, except per share information) The Agree Agree Realty Corporation Predecessors ----------------------------------------------------------------- Year Year Year April 22, January 1, Year Ended Ended Ended Through Through Ended Dec 31, Dec 31, Dec 31, Dec 31, April 21, Dec 31, Operating Data 1997 1996 1995 1994 1994 1993 - --------------------------------------------------------------------------------------------------------- Total Revenue $ 18,234 $ 16,291 $ 13,699 $ 9,280 $ 4,080 $ 13,156 -------- -------- -------- -------- -------- -------- Expenses Property expense (1) 2,785 2,485 2,049 1,245 681 1,872 General and administrative 1,107 1,105 966 668 159 660 Interest 5,552 6,101 4,335 2,972 2,584 8,803 Depreciation and amortization 2,782 2,620 2,317 1,627 680 2,292 -------- -------- -------- -------- -------- -------- Total Expenses 12,226 12,311 9,667 6,512 4,104 13,627 -------- -------- -------- -------- -------- -------- Other Income (Expense) (2) 155 653 -- (375) 85 448 -------- -------- -------- -------- -------- -------- Income (loss) before extraordinary item and minority interest 6,163 4,633 4,032 2,393 61 (23) Extraordinary Item - Early Extinguishment of Debt -- -- -- (2,139) -- -- -------- -------- -------- -------- -------- -------- Income (loss) before Minority Interest 6,163 4,633 4,032 254 61 (23) Minority Interest 943 899 785 49 -- -- -------- -------- -------- -------- -------- -------- Net Income (Loss) $ 5,220 $ 3,734 $ 3,247 $ 205 $ 61 $ (23) ======== ======== ======== ======== ======== ======== Funds from Operations $ 9,581 $ 7,076 $ 6,389 $ 4,544 -- -- ======== ======== ======== ======== ======== ======== Number of Properties 34 32 20 17 17 17 ======== ======== ======== ======== ======== ======== Number of Square Feet 3,103 3,068 2,470 2,377 2,377 2,377 ======== ======== ======== ======== ======== ======== Per Share Data - -------------- Net income (3) $ 1.41 $ 1.41 $ 1.23 $ 0.08 -- -- ======== ======== ======== ======== ======== ======== Cash dividends $ 1.82 $ 1.80 $ 1.80 $ 1.25 -- -- ======== ======== ======== ======== ======== ======== Weighted average of common shares outstanding 3,695 2,649 2,638 2,638 -- -- ======== ======== ======== ======== ======== ======== Balance Sheet Data Real Estate (before accumulated depreciation) $142,748 $132,474 $118,360 $ 96,852 $ 96,548 Total Assets $130,492 $121,382 $108,928 $ 89,653 $ 89,835 Total debt, including accrued interest $ 65,419 $ 88,252 $ 73,741 $ 54,431 $ 94,334 - ---------- (1) Property expense includes real estate taxes, property maintenance, insurance, utilities and land lease expense. (2) Other income (expense) is composed of development fee income, gain on land sales, equity in net income of unconsolidated entities and reorganization costs. (3) Net income per share has been computed by dividing the net income by the weighted average number of shares of Common Stock outstanding. The per share amounts shown are presented in accordance with SFAS No. 128 "Earnings per Share". The Company's basic and diluted earnings per share are the same
-15- ITEM 7. MANAGEMENT'S DISCUSSION AND ANYALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company was established to continue to operate and expand the retail property business of its predecessors. The Company commenced its operations on April 22, 1994 with the sale of 2,500,000 shares of common stock in an additional public offering. The net cash proceeds to the Company from the completion of this offering were approximately $45.4 million, which were used primarily to reduce outstanding indebtedness, pay stock issuance costs and establish a working capital reserve. On May 21, 1997, the Company completed an offering of 1,625,000 shares of common stock at $20.625 per share; on June 18, 1997 the underwriters exercised their overallotment option for an additional 28,850 shares at the same per share price (collectively, "the 1997 Offering"). The net proceeds from the 1997 Offering of approximately $31.9 million were used to repay amounts outstanding under the Company's Credit Facility. The assets of the Company are held by, and all operations are conducted through, Agree Limited Partnership (the "Operating Partnership"), of which the Company is the sole general partner and held an 87.16% interest as of December 31, 1997. The Company is operating so as to qualify as a real estate investment trust ("REIT") for federal income tax purposes. The following should be read in conjunction with the Consolidated Financial Statements of Agree Realty Corporation, including the respective notes thereto, which are included elsewhere in this Form 10-K. Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996 Rental income increased $1,702,000, or 12%, to $16,152,000 in 1997, compared to $14,450,000 in 1996. The increase was the result of the development and acquisition of five Properties in 1996. Operating cost reimbursement, which represents additional rent required by substantially all of the Company's leases to cover the tenants' proportionate share of property operating expenses, increased $236,000, or 13%, to $1,997,000 in 1997, compared to $1,761,000 in 1996. Operating cost reimbursement increased due to the increase in real estate taxes and property operating expenses from 1996 to 1997, as explained below. Management fees and other income remained relatively constant at $85,000 in 1997 compared to $81,000 in 1996. Real estate taxes increased $229,000, or 20%, to $1,398,000 in 1997 compared to $1,169,000 in 1996. The increase is the result of the addition of new properties. Property operating expenses (shopping center maintenance, insurance and utilities) decreased $45,000, or 5%, to $935,000 in 1997 compared $980,000 in 1996. The decrease was the result of decreased snow removal costs of $56,000; an increase in shopping center maintenance costs of $25,000; a decrease in utility costs of $6,000 and a decrease in insurance costs of $8,000 in 1997 versus 1996. -16- Land lease payments increased $116,000 to $452,000 in 1997 compared to $336,000 in 1996 as a result of the acquisition of a ground lease of the free standing Property in Aventura, Florida. General and administrative expenses remained relatively constant at $1,107,000 in 1997 compared to $1,105,000 in 1996. General and administrative expenses as a percentage of rental income decreased from 7.6% for 1996 to 6.9% for 1997. Depreciation and amortization increased $162,000, or 6%, to $2,782,000 in 1997 compared to $2,620,000 in 1996. The increase was the result of the completion of five new properties in 1996. Interest expense decreased $549,000, or 9%, to $5,552,000 in 1997, from $6,101,000 in 1996. The decrease in interest expense was the result of the Company using the proceeds of the 1997 Offering to reduce the Company's indebtedness. Development fee income decreased $452,000, to $57,000 in 1997, from $509,000 in 1996. The decrease in development fee income was the result of the Company substantially completing the development of four Joint Venture Properties in 1996. Development fee income is not included in the Company's calculation of Funds from Operations, due to the non-recurring nature of this type of income. The Company recognized income of $103,000 on the sale of a parcel of land in 1997 compared to the recognition of $84,000 of income on the sale of a parcel of land in 1996. Equity in net income (loss) of unconsolidated entities decreased $64,000 to ($5,000) in 1997 compared to $59,000 in 1996 as a result of additional expenses in 1997 related to certain of the Joint Venture Properties in which the Company holds interests ranging from 8% to 20%. The Company's income before minority interest increased $1,530,000 as a result of the foregoing factors. Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995 Rental income increased $2,514,000, or 21%, to $14,450,000 in 1996, compared to $11,936,000 in 1995. The increase was the result of the development and acquisition of five Properties in 1996 and the development of three Properties in the fourth quarter of 1995. Operating cost reimbursements increased $90,000, or 5%, to $1,761,000 in 1996, compared to $1,671,000 in 1995. Operating cost reimbursements increased due to the increase in real estate taxes and property operating expenses from 1995 to 1996, as explained below. Management fees and other income remained relatively constant at $81,000 in 1996 compared $92,000 in 1995. Real estate taxes increased $49,000, or 4%, to $1,169,000 in 1996 compared to $1,120,000 in 1995. The increase is the result of general assessment increases relating to the shopping center properties and the addition of new properties. -17- Property operating expenses (shopping center maintenance, insurance and utilities) increased $109,000, or 12%, to $980,000 in 1996 compared to $871,000 in 1995. The increase was the result of increased snow removal costs of $26,000; an increase in shopping center maintenance costs of $95,000; an increase in utility costs of $8,000 and a decrease in insurance costs of $20,000 in 1996 versus 1995. Land lease payments increased $280,000 to $336,000 in 1996 compared to $56,000 in 1995 as a result of the acquisition of a ground lease of the free standing Property in Aventura, Florida. General and administrative expenses increased by $139,000, or 14%, to $1,105,000 in 1996 compared to $966,000 in 1995. The increase was primarily the result of an increase in compensation related expenses of $24,000; increases in state franchise and income taxes of $40,000; additional administrative expenses in connection with its secured line of credit of $25,000 and increased expenses in connection with the management of the Company's properties of $50,000. General and administrative expenses as a percentage of rental income decreased from 8.1% for 1995 to 7.6% for 1996. Depreciation and amortization increased $303,000, or 13%, to $2,620,000 in 1996 compared to $2,317,000 in 1995. The increase was the result of the completion of eight new properties in late 1995 and 1996. Interest expense increased $1,766,000, or 41%, to $6,101,000 in 1996, from $4,335,000 in 1995. The increase in interest expense was the result of the Company financing the development and acquisition of eight new Properties in late 1995 and 1996. The Company received $510,000 of development fee income in 1996 in connection with the development of four Joint Venture Properties. There was no development fee income in 1995. The above amount was not included in the Company's calculation of Funds from Operations, due to the non-recurring nature of this type of income. The Company recognized income of $85,000 on the sale of a parcel of land in 1996. There were no land sale gains in 1995. Equity in net income (loss) of unconsolidated entities represents the Company's share of the net income of $59,000, from the seven Joint Ventures formed for the purpose of acquiring and developing the single tenant properties for Borders. These entities were not in existence during the year ended December 31, 1995. The Company's income before minority interest increased $601,000 as a result of the foregoing factors. -18- Funds From Operations Management considers Funds from Operations ("FFO") to be a supplemental measure of the Company's operating performance. FFO is defined by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") to mean net income computed in accordance with generally accepted accounting principals ("GAAP"), excluding gains (or losses) from debt restructuring and sales of property, plus real estate related depreciation and amortization, and after adjustments for unconsolidated entities in which the REIT holds an interest. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as the primary indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. The following table illustrates the calculation of FFO for the years ended December 31, 1997, 1996 and 1995:
Year ended December 31, 1997 1996 1995 - ----------------------- ----------------------------------- Net income before minority interest $6,163,510 $4,633,295 $4,032,381 Depreciation of real estate assets 2,726,066 2,556,603 2,248,720 Amortization of leasing costs 40,504 52,033 58,867 Amortization of stock awards 113,380 82,873 48,750 Depreciation of real estate assets held in unconsolidated entities 698,141 345,972 -- Gain on sale of assets (103,270) (84,688) -- Development fee income (57,089) (509,673) -- ---------- ---------- ---------- Funds from Operations $9,581,242 $7,076,415 $6,388,718 ---------- ---------- ---------- Funds from Operations per share $2.21 $2.15 $1.95 ---------- ---------- ---------- Weighted average shares and OP Units outstanding 4,333,121 3,287,434 3,276,144 ---------- ---------- ----------
FFO increased $2,505,000, or 35%, for the year ended December 31, 1997, to $9,581,000. FFO increased $688,000, or 11%, for the year ended December 31, 1996, to $7,076,000. The increase in FFO is primarily the result of the reduction in interest expense as a result of the completion of the 1997 Offering and the development and acquisition of five Properties in 1996. Liquidity and Capital Resources The Company's principal demands for liquidity are distributions to its stockholders, debt repayment, development of new properties and future property acquisitions. During the quarter ended December 31, 1997, the Company declared a quarterly dividend of $.46 per share. The dividend was paid on January 6, 1998 to holders of record on December 23, 1997. -19- As of December 31, 1997, the Company had total mortgage indebtedness of $50,954,026 with a weighted average interest rate of 7.55%. Future scheduled annual maturities of mortgages payable for the years ending December 31 are as follows: 1998 - $353,024; 1999 - $8,395,468; 2000 - $969,964; 2001 - $1,046,875; 2002 - $1,130,071. This mortgage debt is all fixed rate debt. In addition, the Operating Partnership has in place a $50 million line of credit facility (the "Credit Facility") which is guaranteed by the Company. The loan matures in August 2000 and can be extended by the Company for an additional three years. Advances under the Credit Facility bear interest within a range of one-month to six-month LIBOR plus 150 basis points to 213 basis points or the bank's prime rate less 50 basis points to plus 13 basis points, at the option of the Company, based on certain factors such as debt to property value and debt service coverage. The Credit Facility is used to fund property acquisitions and development activities and is secured by most of the Company's Properties which are not otherwise encumbered and properties to be acquired or developed. As of December 31, 1997, $6,865,459 was outstanding under the Credit Facility. The Company also has in place a $5 million line of credit (the "Line of Credit"), which matures in September 1998, and which the Company expects to renew for an additional 12-month period. The Line of Credit bears interest at the bank's prime rate or 200 basis points in excess of the one-month LIBOR rate, at the option of the Company. The purpose of the Line of Credit is to provide working capital to the Company and fund land options and start-up costs associated with new projects. As of December 31, 1997, $1,775,557 was outstanding under the Line of Credit. The Company's two wholly-owned subsidiaries have obtained construction financing of approximately $6,850,000 to fund the development of two retail properties. The notes require quarterly interest payments, based on a weighted average interest rate based on LIBOR, computed by the lender. The notes mature on October 16, 2002 and are secured by the underlying land and buildings. As of December 31, 1997, $3,844,601 was outstanding under these notes. The Company has received funding from an unaffiliated third party for the construction of certain of its Properties. Advances under this arrangement bear no interest and are required to be repaid within sixty (60) days after the date construction has been completed. The advances are secured by the specific land and buildings being developed. As of December 31, 1997, $1,730,490 was outstanding under this arrangement. In December 1997, the Company completed development of two properties that added 33,905 square feet to the its portfolio. The properties are located in Lawrence, Kansas and Waterford, Michigan. The development of these retail projects is expected to have a positive effect on cash generated by operating activities and Funds from Operations. The Company has one development project under construction that will add an additional 14,000 square feet of retail space to the Company's portfolio. The project is expected to be completed during the second quarter of 1998. Additional Company funding required for this project is estimated to be $1,600,000 and will come from the Credit Facility. In addition, the Company recently announced that, it would develop two additional projects located in Tulsa, Oklahoma and Pontiac, -20- Michigan. These two projects will add approximately 39,000 square feet of retail space to the Company's portfolio. The budgeted cost of the two additional projects is $7.4 million. Management expects the development of these projects to have a positive effect on cash generated by operating activities and Funds from Operations. The Company intends to meet its short-term liquidity requirements, including capital expenditures related to the leasing and improvement of the Properties, through its cash flow provided by operations and the Line of Credit. Management believes that adequate cash flow will be available to fund the Company's operations and pay dividends in accordance with REIT requirements. The Company may obtain additional funds for future development or acquisitions through other borrowings or the issuance of additional shares of capital stock. The Company intends to incur additional debt in a manner consistent with its policy of maintaining a ratio of total debt (including construction and acquisition financing) to total market capitalization of 65% or less. The Company plans to begin construction of additional pre-leased developments and may acquire additional properties, which will initially be financed by the Credit Facility and Line of Credit. Management intends to periodically refinance short-term construction and acquisition financing with long-term debt and / or equity. Upon completion of refinancing, the Company intends to lower the ratio of total debt to market capitalization to 50% or less. Nevertheless, the Company may operate with debt levels or ratios which are in excess of 50% for extended periods of time prior to such refinancing. Year 2000 Costs The Company, like most owners of computer software, will be required to modify certain portions of its software so that it will function properly in the year 2000. Maintenance or modification costs will be expensed as incurred, while the costs of any new software will be capitalized and amortized over the software's useful life. Management believes these "year 2000" costs will be immaterial. Inflation The Company's leases generally contain provisions designed to mitigate the adverse impact of inflation on net income. These provisions include clauses enabling the Company to pass through to tenants certain operating costs, including real estate taxes, common area maintenance, utilities and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. Certain of the Company's leases contain clauses enabling the Company to receive percentage rents based on tenants' gross sales, which generally increase as prices rise, and, in certain cases, escalation clauses, which generally increase rental rates during the terms of the leases. In addition, expiring tenant leases permit the Company to seek increased rents upon re-lease at market rates if rents are below the then existing market rates. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income", and SFAS No. 131 "Disclosures about segments of an Enterprise and Related Information." These statements are effective for financial periods beginning after December -21- 15, 1997 and require comparative information for earlier years to be restated. Management has not determined the impact, if any, the statements may have on future financial statement disclosures. Item 7A QUANTITATIVE AND QUALATATIVE DISCLOSURES ABOUT MARKET RISK Not applicable Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data are listed in the Index to Financial Statements and Financial Statement Schedules appearing on Page F-1 of this Form 10-K and are included in this Form 10-K following page F-1. Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE During the Company's last two fiscal years, there have been no changes in the independent accountants nor disagreements with such accountants as to accounting and financial disclosures of the type required to be disclosed in this Item 9. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated herein by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to its Annual Meeting of Stockholders to be held on May 11, 1998. Item 11. EXECUTIVE COMPENSATION Incorporated herein by reference to the Company's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to its Annual Meeting of Stockholders to be held on May 11, 1998. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference from the Company's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its Annual Meeting of Stockholders to be held on May 11, 1998. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference from the Company's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its Annual Meeting of Stockholders to be held on May 11, 1998. -22- PART IV Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report (1)(2) The financial statements indicated by Part II, Item 8, Financial Statements and Supplementary Data. (3) Exhibits 3.1 Articles of Incorporation and Articles of Amendment of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-11 (Registration Statement No. 33-73858, as amended ("Agree S-11")) 3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.3 to Agree S-11) 10.1 Loan Modification Agreement, dated April 22, 1994, by and among Shawano Plaza, Plymouth Commons, Chippewa Commons and Nationwide Life Insurance Company (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (the 1996 "Form 10-K")) 10.2 Loan Modification Agreement, dated April 22, 1994, by and among Rapids Associates, Marshall Plaza Phase Two, Petoskey Town Center, Charlevoix Commons and Nationwide Life Insurance Company (incorporated by reference to Exhibit 10.2 to the 1996 Form 10-K 10.3 Modification Agreement, dated as of March 28, 1994, by and between North Lakeland Plaza and the Travelers Indemnity Company (incorporated by reference to Exhibit 4.2 to Agree S-11) 10.4 Loan Agreement, dated August 19, 1992, by and among Richard Agree, Edward Rosenberg and Michigan National Bank (incorporated by reference to Exhibit 4.3 to Agree S-11) 10.5 Loan Agreement dated March 7, 1990, and Modification of Mortgage and Security Agreement, dated July 10, 1990, by and between Winter Garden Plaza and American United Life Insurance Company (incorporated by reference to Exhibit 4.4 to Agree S-11) 10.6 First Amended and Restated Agreement of Limited Partnership of Agree Limited Partnership, dated as of April 22, 1994, by and among the Company, Richard Agree, Edward Rosenberg and Joel Weiner (incorporated by reference to Exhibit 10.6 to the 1996 Form 10-K) 10.7 Amended and Restated Registration Rights Agreement, dated July 8, 1994 by and among the Company, Richard Agree, Edward Rosenberg and Joel Weiner (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (the "1994 Form 10-K")) 10.8 + 1994 Stock Incentive Plan of the Company (incorporated by reference to Exhibit 10.8 to the 1996 Form 10-K) 10.9 Management Agreement, dated April 22, 1994, by and among Mt Pleasant Shopping Center, Angola Plaza, Shiloh Plaza and the Company (incorporated by reference to Exhibit 10.9 to the 1996 Form 10-K) -23- 10.10 Contribution Agreement, dated as of April 21, 1994, by and among the Company, Richard Agree, Edward Rosenberg and the co-partnerships named therein (incorporated by reference to Exhibit 10.10 to the 1996 Form 10-K) 10.11 + Employment Agreement, dated April 22, 1994, by and between the Company and Richard Agree (incorporated by reference to Exhibit 10.11 to the 1996 Form 10-K) 10.12 + Employment Agreement, dated April 22, 1994, by and between the Company and Edward Rosenberg (incorporated by reference to Exhibit 10.12 to the 1996 Form 10-K) 10.13 + Agree Realty Corporation Profit Sharing Plan (incorporated by reference to Exhibit 10.13 to the 1996 Form 10-K) 10.14 Business Loan Agreement by and between Agree Limited Partnership and Michigan National Bank (incorporated by reference to Exhibit 10.8 to the 1994 10-K) 10.15 Business Loan Agreement, dated as of September 21, 1995, by and between Agree Limited Partnership and Michigan National Bank (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 (the "1995 10-K")) 10.16 Line of Credit Agreement by and among Agree Limited Partnership, the Company, the lenders parties thereto, and Michigan National Bank as Agent (incorporated by reference to Exhibit 10.10 to the 1995 10-K) 10.17 First amendment to $50 million line-of-credit agreement dated August 7, 1997 among Agree Realty Corporation and Michigan National Bank, as agent (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ending September 30, 1997 (the September 1997 "Form 10-Q")) 10.18 First amendment to $5 million business loan agreement dated September 21, 1997 between Agree Limited Partnership and Michigan National Bank (incorporated by reference to Exhibit 10.2 to the September 1997 Form 10-Q) 10.19 * Second amendment to $50 million line-of-credit agreement dated November 17, 1997 among Agree Realty Corporation and Michigan National Bank, as agent 27.1 * Financial Data Schedule - ----------------------------------------------------------------------------- * Filed herewith + Management contract or compensatory plan or arrangement (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ending December 31, 1997. -24- SIGNATURES PURSUANT to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AGREE REALTY CORPORATION By: /s/ Richard Agree ----------------------------- Name: Richard Agree President and Chairman of the Board of Directors Date: March 23, 1998 PURSUANT to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 23rd day of March 1998. By: /s/Richard Agree By: /s/ Farris G. Kalil ----------------------------- --------------------- Richard Agree Farris G. Kalil President and Chairman of the Director Board of Directors (Principal Executive Officer) By: /s/ Michael Rotchford --------------------- Michael Rotchford Director By: /s/Kenneth R. Howe ----------------------------- Kenneth R. Howe Vice President, Finance By: /s/ Ellis G. Wachs and Secretary --------------------- (Principal Financial and Ellis G. Wachs Accounting Officer) Director By: /s/ Gene Silverman --------------------- Gene Silverman By: /s/ Edward Rosenberg Director ----------------------------- Edward Rosenberg Director -25- Agree Realty Corporation Index - ----------------------------------------------------------------------------- Page ---- Report of Independent Certified Public Accountants F-2 Financial Statements Consolidated Balance Sheets F-3 Consolidated Statements of Income F-5 Consolidated Statements of Stockholders' Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to Financial Statements F-9 Schedule III - Real Estate and Accumulated Depreciation F-20 F - 1 [ Letterhead of BDO Seidman, LLP ] Report of Independent Certified Public Accountants To the Board of Directors and Owners of Agree Realty Corporation Farmington Hills, Michigan We have audited the accompanying consolidated balance sheets of Agree Realty Corporation (the "Company") as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. We have also audited the schedule listed in the accompanying index. These financial statements and the schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and the schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and the schedule. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Agree Realty Corporation at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth therein. BDO SEIDMAN, LLP Troy, Michigan February 11, 1998 F - 2 Agree Realty Corporation Consolidated Balance Sheets - -----------------------------------------------------------------------------
December 31, 1997 1996 - ---------------------------------------------------------------------------- Assets Real Estate Investments (Notes 3, 4 and 5) Land $ 29,952,532 $ 25,183,667 Buildings 112,307,266 107,204,583 Property under development 488,651 85,993 ------------- ------------- 142,748,449 132,474,243 Less accumulated depreciation (20,043,235) (17,339,353) ------------- ------------- Net Real Estate Investments 122,705,214 115,134,890 Cash and Cash Equivalents 1,785,968 294,389 Accounts Receivable - Tenants 473,918 638,735 Restricted Asset - Cash Held in Escrow 276,564 266,771 Investments In and Advances To Unconsolidated Entities 1,810,241 1,820,605 Unamortized Deferred Expenses Financing costs 2,133,426 2,398,377 Leasing costs 236,151 141,757 Other Assets 1,070,022 686,346 ------------- ------------- $ 130,491,504 $ 121,381,870 ============= ============= See accompanying notes to consolidated financial statements.
F - 3 Agree Realty Corporation Consolidated Balance Sheets - -----------------------------------------------------------------------------
December 31, 1997 1996 - ------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Mortgages Payable (Note 3) $ 50,954,026 $ 53,663,999 Construction Loans (Note 4) 5,575,091 10,616,936 Notes Payable (Note 5) 8,641,016 23,616,382 Dividends and Distributions Payable (Note 6) 2,284,792 1,479,345 Accrued Interest Payable 248,742 354,988 Accounts Payable Operating 602,862 691,981 Capital expenditures 1,516,379 596,794 Tenant Deposits 51,240 50,394 ------------- ------------- Total Liabilities 69,874,148 91,070,819 ------------- ------------- Minority Interest (Note 7) 5,651,347 5,869,014 ------------- ------------- Stockholders' Equity (Notes 6 and 8) Common stock, $.0001 par value; 20,000,000 shares authorized; 4,328,980 and 2,649,475 shares issued and outstanding 433 265 Additional paid-in capital 62,503,487 30,060,908 Deficit (7,537,911) (5,619,136) ------------- ------------- Total Stockholders' Equity 54,966,009 24,442,037 ------------- ------------- $ 130,491,504 $ 121,381,870 ============= ============= See accompanying notes to consolidated financial statements.
F - 4 Agree Realty Corporation Consolidated Statements of Income - -----------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995 - ----------------------------------------------------------------------------------- Revenues Rental income $ 16,152,240 $ 14,450,035 $ 11,935,523 Operating cost reimbursement 1,997,087 1,760,681 1,671,359 Management fees and other (Note 9) 84,840 80,752 91,714 ------------ ------------ ------------ Total Revenues 18,234,167 16,291,468 13,698,596 ------------ ------------ ------------ Operating Expenses Real estate taxes 1,398,120 1,169,308 1,120,515 Property operating expenses 934,584 979,606 871,167 Land lease payments 452,106 336,083 56,000 General and administrative 1,106,816 1,104,861 966,464 Depreciation and amortization 2,782,083 2,620,274 2,316,862 ------------ ------------ ------------ Total Operating Expenses 6,673,709 6,210,132 5,331,008 ------------ ------------ ------------ Income From Operations 11,560,458 10,081,336 8,367,588 ------------ ------------ ------------ Other Income (Expense) Interest expense, net (5,551,734) (6,101,106) (4,335,207) Gain on land sales 103,270 84,688 -- Development fee income 57,089 509,673 -- Equity in net income (loss) of unconsolidated entities (5,573) 58,704 -- ------------ ------------ ------------ Total Other Expense (5,396,948) (5,448,041) (4,335,207) ------------ ------------ ------------ Income Before Minority Interest 6,163,510 4,633,295 4,032,381 Minority Interest 943,287 899,323 785,105 ------------ ------------ ------------ Net Income $ 5,220,223 $ 3,733,972 $ 3,247,276 ============ ============ ============ Earnings Per Share (Note 2) $ 1.41 $ 1.41 $ 1.23 ============ ============ ============ Weighted Average Number of Common Shares Outstanding 3,695,162 2,649,475 2,638,185 ============ ============ ============ See accompanying notes to consolidated financial statements.
F - 5 Agree Realty Corporation Consolidated Statements of Stockholders' Equity - -----------------------------------------------------------------------------
Common Stock Additional ------------------------- Paid-In Shares Amount Capital Deficit - ---------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1995 2,638,185 $ 264 $ 29,890,292 $ (3,082,597) Dividends declared for the year ended December 31, 1995, $1.80 per share -- -- -- (4,748,733) Net income for the year ended December 31, 1995 -- -- -- 3,247,276 --------- ------------ ------------ ------------ Balance, December 31, 1995 2,638,185 264 29,890,292 (4,584,054) Issuance of shares under the Stock Incentive Plan 11,290 1 170,616 -- Dividends declared for the year ended December 31, 1996, $1.80 per share -- -- -- (4,769,054) Net income for the year ended December 31, 1996 -- -- -- 3,733,972 --------- ------------ ------------ ------------ Balance, December 31, 1996 2,649,475 265 30,060,908 (5,619,136) Issuance of shares under the Stock Incentive Plan 28,955 3 618,910 -- Issuance of common stock 1,653,850 165 31,888,031 -- Shares retired under the Stock Incentive Plan (3,300) -- (64,362) -- Dividends declared for the year ended December 31, 1997, $1.82 per share -- -- -- (7,138,998) Net income for the year ended December 31, 1997 -- -- -- 5,220,223 --------- ------------ ------------ ------------ Balance, December 31, 1997 4,328,980 $ 433 $ 62,503,487 $ (7,537,911) ========= ============ ============ ============ See accompanying notes to consolidated financial statements.
F - 6 Agree Realty Corporation Consolidated Statements of Cash Flows - -----------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net income $ 5,220,223 $ 3,733,972 $ 3,247,276 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 2,709,177 2,523,621 2,252,642 Amortization 483,267 505,089 311,415 Equity in net (income) loss of unconsolidated entities 5,573 (58,704) -- Minority interests 943,287 899,323 785,105 Gain on land sales (103,270) (84,688) -- Decrease (increase) in accounts receivable 164,817 (12,455) (64,629) Decrease (increase) in other assets 8,042 677 (133,728) Increase (decrease) in accounts payable (89,119) 95,068 197,406 Increase (decrease) in accrued interest (106,246) 165,732 9,592 Increase (decrease) in tenant deposits 846 (3,083) (5,484) ------------ ------------ ------------ Net Cash Provided By Operating Activities 9,236,597 7,764,552 6,599,595 ------------ ------------ ------------ Cash Flows From Investing Activities Acquisition of real estate investments (including capitalized interest of $117,892 in 1997, $78,703 in 1996 and $59,752 in 1995) (8,677,691) (13,577,181) (19,870,270) Proceeds from sale of land 148,270 144,688 -- Investments in and advances to unconsolidated entities - net 4,791 (1,761,901) -- Proceeds from sale of marketable securities -- -- 300,188 ------------ ------------ ------------ Net Cash Used In Investing Activities (8,524,630) (15,194,394) (19,570,082) ------------ ------------ ------------ See accompanying notes to consolidated financial statements.
F - 7 Agree Realty Corporation Consolidated Statements of Cash Flows - -----------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995 - ---------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities Net proceeds from the issuance of common stock 31,888,196 -- -- Payment on line-of-credit (31,250,375) -- -- Line-of-credit proceeds 16,275,009 21,638,574 1,977,808 Payment of construction loans (9,140,888) (11,861,006) -- Dividends and limited partners' distributions paid (7,494,505) (5,912,300) (5,897,059) Proceeds from construction loans 4,099,043 4,874,157 17,603,785 Payments of mortgages payable (2,709,973) (306,526) (280,522) Payments of payables for capital expenditures (596,794) (1,637,861) -- Payments for financing costs (145,410) (293,148) (765,535) Payments of leasing costs (134,898) (53,764) (27,524) Increase in escrow deposits (9,793) (7,567) (16,200) ------------ ------------ ------------ Net Cash Provided By Financing Activities 779,612 6,440,559 12,594,753 ------------ ------------ ------------ Net Increase (Decrease) In Cash and Cash Equivalents 1,491,579 (989,283) (375,734) Cash and Cash Equivalents, beginning of year 294,389 1,283,672 1,659,406 ------------ ------------ ------------ Cash and Cash Equivalents, end of year $ 1,785,968 $ 294,389 $ 1,283,672 ============ ============ ============ Supplemental Disclosure of Cash Flow Information Cash paid for interest $ 5,313,000 $ 5,551,000 $ 4,117,000 ============ ============ ============ Supplemental Disclosure of Non-Cash Transactions Dividends and limited partners' distributions declared and unpaid $ 2,284,792 $ 1,479,345 $ 1,474,265 Real estate investments financed with accounts payable $ 1,516,379 $ 596,794 $ 1,637,861 Shares issued under Stock Incentive Plan $ 618,913 $ 170,617 $ -- Shares retired under Stock Incentive Plan $ 64,362 $ -- $ -- ============ ============ ============ See accompanying notes to consolidated financial statements.
F - 8 Agree Realty Corporation Notes to Consolidated Financial Statements - ----------------------------------------------------------------------------- 1. The Company Agree Realty Corporation (the "Company") is a self-administered, self-managed real estate investment trust which develops, acquires, owns and operates properties which are primarily leased to national and regional retail companies under net leases. At December 31, 1997, the Company's properties are comprised of thirteen shopping centers and fourteen single tenant retail facilities located in eleven states. In addition, the Company owns joint venture interests ranging from 8% to 20% in seven free-standing retail properties. During the year ended December 31, 1997, approximately 93% of the Company's base rental revenues were received from national and regional tenants under long-term leases, including approximately 31% from Kmart Corporation and 26% from Borders, Inc. 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements of Agree Realty Corporation include the accounts of the Company, its majority-owned partnership, Agree Limited Partnership (the "Operating Partnership"), and its wholly-owned subsidiaries. The Company controlled, as the sole general partner, 87.16% and 80.59% of the Operating Partnership as of December 31, 1997 and 1996, respectively. All material intercompany accounts and transactions are eliminated. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect (1) the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and (2) revenues and expenses during the reporting period. Actual results could differ from those estimates. F - 9 Fair Values of Financial Instruments The carrying amounts of the Company's financial instruments, which consist of cash, cash equivalents, receivables, notes payable, accounts payable and long-term debt, approximate their fair values. Valuation of Long-Lived Assets Long-lived assets such as real estate investments are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to fair value. No impairment loss recognition has been required through December 31, 1997. Real Estate Investments Real estate assets are stated at cost less accumulated depreciation. All costs related to planning, development and construction of buildings prior to the date they become operational, including interest and real estate taxes during the construction period, are capitalized for financial reporting purposes. Subsequent to completion of construction, expenditures for property maintenance are charged to operations as incurred, while significant renovations are capitalized. Depreciation of the buildings is recorded on the straight-line method using an estimated useful life of forty years. Cash and Cash Equivalents Cash and cash equivalents include cash and money market accounts. Accounts Receivable - Tenants Accounts receivable from tenants reflect primarily reimbursement of specified common area maintenance costs. No allowance for uncollectible accounts has been provided based on past collection results. F - 10 Restricted Assets These amounts represent funds on deposit restricted by certain lenders pursuant to agreements entered into by the Company. The funds held in escrow are used to pay capital-related costs and are released to the Company upon inspection and leasing of related property to tenants and are used to pay real estate taxes for one shopping center in Florida. Investments in Unconsolidated Entities The Company uses the equity method of accounting for investments in non- majority owned entities where the Company has the ability to exercise significant influence over operating and financial policies. The Company's initial investment is recorded at cost, and the carrying amount of the investment is (a) increased by the Company's share of the investees' earnings (as defined in the limited liability company agreements), and (b) reduced by distributions paid from the investees to the Company. Unamortized Deferred Expenses Deferred expenses are stated net of total accumulated amortization. The nature and treatment of these capitalized costs are as follows: (1) financing costs, consisting of expenditures incurred to obtain long-term financing, are being amortized using the interest method over the term of the related loan, and (2) leasing costs, which are amortized on a straight-line basis over the term of the related lease. F - 11 Accounts Payable - Capital Expenditures Included in accounts payable are amounts related to the construction of buildings. Due to the nature of these expenditures, they are reflected in the statements of cash flows as a financing activity. Minority Interest This amount represents the limited partners' interest ("OP Units") of 12.84% and 19.41% in the Operating Partnership as of December 31, 1997 and 1996, respectively, which is convertible into 637,959 shares of the Company's common stock. Revenue Recognition Base rental income attributable to leases is recorded when due from tenants. Certain leases provide for additional rents based on tenants' sales volume. These percentage rents are reflected based on the tenants' fiscal year; however, such amounts earned by the Company historically have not been material. In addition, leases for certain tenants contain rent escalations and/or free rent during the first several months of the lease term; however, such amounts are not material. The Company acts as the construction developer on certain properties. Related development fee income is recognized upon completion of construction. Operating Cost Reimbursement Substantially all of the Company's leases contain provisions requiring tenants to pay as additional rent a proportionate share of operating expenses such as real estate taxes, repairs and maintenance, insurance, etc. The related revenue from tenant billings is recognized in the same period the expense is recorded. F - 12 Income Taxes The Company has elected to be taxed as a real estate investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. A REIT generally will not be subject to federal income taxation on that portion of its income that qualifies as REIT taxable income to the extent that it distributes at least 95 percent of its taxable income to its stockholders and complies with certain other requirements. Accordingly, no provision has been made for federal income taxes for the Company in the accompanying consolidated financial statements. The aggregate federal income tax basis of Real Estate Investments is approximately $11.3 million less than the financial statement basis. Earnings Per Share Earnings per share has been computed by dividing net income by the weighted average number of common shares outstanding. The per share amounts reflected in the consolidated statements of income are presented in accordance with Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share"; the amounts of the Company's "basic" and "diluted" earnings per share (as defined in SFAS No. 128) are the same. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income", and SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information." These statements are effective for financial periods beginning after December 15, 1997 and require comparative information for earlier years to be restated. Management has not determined the impact, if any, these statements may have on future financial statement disclosures. F - 13 3. Mortgages Payable Mortgages payable consisted of the following:
December 31, 1997 1996 - ------------------------------------------------------------------------------------------------------------------- Note payable in monthly installments of interest only at 6.875% per annum until May 1999, at which time the Company can elect to either pay the amount in full or accept the then prevailing interest rate and continue making principal and interest payments based on a 22-year amortization schedule, with the remaining unpaid principal and accrued unpaid interest then due November 2005, collateralized by related real estate and tenants' leases $ 33,600,000 $ 33,600,000 Note payable in monthly installments of $98,477 including interest at 9.75% per annum, collater- alized by related real estate and tenants' leases, final balloon installment due July 2010 9,503,286 9,698,073 Note payable in monthly installments of $62,881 including interest at 7.75% per annum, collater- alized by related real estate and tenants' leases, final balloon installment due March 1999 7,850,740 7,990,926 Other, repaid during 1997 -- 2,375,000 ------------ ------------ Total $ 50,954,026 $ 53,663,999 ============ ============
Future scheduled annual maturities of mortgages payable for years ending December 31, are as follows: 1998 - $353,024; 1999 - $8,395,468; 2000 - $969,964; 2001 - $1,046,875; 2002 - $1,130,071 and $39,058,624 thereafter. (These maturities assume that the $33,600,000 mortgage will be extended beyond May 1999.) F - 14 4. Construction Loans During 1997, the Company's wholly-owned subsidiaries obtained construction financing totalling approximately $6,850,000, which is available to fund the development of two retail properties. Quarterly interest payments are based on a weighted average interest rate based on LIBOR. The notes mature on October 16, 2002 and are secured by the related land and buildings. As of December 31, 1997, the Company owed $3,844,601 for these construction loans. The Company has received funding from an unaffiliated third party for certain of its single tenant retail properties. Borrowings under this arrangement bear no interest and are required to be repaid within sixty (60) days after the date the construction has been completed. The advances are secured by the specific land and buildings being developed. As of December 31, 1997 and 1996, $1,730,490 and $10,616,936 was outstanding under this agreement, respectively. 5. Notes Payable The Operating Partnership has entered into a $50 million line-of-credit agreement which is guaranteed by the Company. The agreement expires on August 7, 2000 and can be extended, at the option of the Company, for an additional three years. Advances under this credit facility bear interest within a range of LIBOR plus 150 basis points to 213 basis points, or the bank's prime rate less 50 basis points to plus 13 basis points, at the option of the Company, based on certain factors such as debt to property value and debt service coverage. The credit facility is used to fund property acquisitions and development activities, and is secured by specific properties. At December 31, 1997 and 1996, $6,865,459 and $20,746,937 was outstanding under this facility, respectively. In addition, the Company maintains a $5,000,000 line-of-credit agreement with a bank which expires on September 21, 1998. Payments of interest only, at the bank's prime rate, or 200 basis points in excess of the one-month LIBOR rate, at the option of the Company, are required monthly. At December 31, 1997 and 1996, $1,775,557 and $2,869,445 was outstanding under this agreement, respectively. F - 15 6. Dividends and Distributions Payable On December 8, 1997, the Company declared a dividend of $.46 per share for the quarter ended December 31, 1997; approximately 34 percent of the dividend represented a return of capital. The holders of OP Units were entitled to an equal distribution per OP Unit held as of December 31, 1997. The dividends and distributions payable are recorded as liabilities in the Company's balance sheet at December 31, 1997. The dividend has been reflected as a reduction of stockholders' equity and the distribution has been reflected as a reduction of the limited partners' minority interest. These amounts were paid on January 6, 1998. 7. Minority Interest The following summarizes the changes in minority interest since January 1, 1996: Minority interest at January 1, 1996 $ 6,118,017 Minority interests' share of income for the year ended December 31, 1996 899,323 Distributions for the year ended December 31, 1996 (1,148,326) ----------- Minority Interest at December 31, 1996 5,869,014 Minority interests' share of income for the year ended December 31, 1997 943,287 Distributions for the year ended December 31, 1997 (1,160,954) ----------- Minority Interest at December 31, 1997 $ 5,651,347 ===========
8. Issuance of Common Stock During May and June 1997, the Company sold 1,653,850 shares of common stock. The cash proceeds (net of underwriting fees and related issuance costs) to the Company from the stock issuance sales were approximately $31.9 million, which was used to reduce outstanding indebtedness. 9. Related Party Transactions The Company currently manages certain additional properties which are owned by certain officers and directors of the Company, but are not included in the consolidated financial statements. Income related to these activities is reflected as "Management fees and other" in the accompanying consolidated statements of income. F - 16 10. Stock Incentive Plan The Company has established a stock incentive plan (the "Plan") under which 29,400 options were granted in April 1994. The options, which have an exercise price equal to the initial public offering price ($19.50/share), can be exercised in increments of 25% on each anniversary of the date of the grant. A total of 22,050 and 14,700 of the options were exercisable at December 31, 1997 and 1996, respectively. No options were exercised during either 1997 or 1996. The Company has adopted the disclosure-only provisions of SFAS No. 123 "Accounting for Stock-Based Compensation." However, since no compensation cost would have been recognized pursuant to SFAS No. 123 under the Plan in either 1997 or 1996, there is no effect on the Company's net income for these years. 11. Restricted Stock As part of the Company's stock incentive plan, 12,500 restricted common shares were granted to certain employees in April 1994; an additional 11,290 shares were granted during 1996 and 28,955 shares were granted and 3,300 shares were forfeited during 1997. The restricted shares vest in increments of 20% per year for five years. The Company recorded related compensation expense of $113,380, $82,873 and $48,750 in 1997, 1996 and 1995, respectively. Plan participants are entitled to receive the quarterly dividends on their respective restricted shares. 12. Profit-Sharing Plan The Company has a discretionary profit-sharing plan whereby it contributes to the plan such amounts as the Board of Directors of the Company determines. The participants in the plan cannot make any contributions to the plan. Contributions to the plan are allocated to the employees based on their percentage of compensation to the total compensation of all employees for the plan year. Participants in the plan become fully vested after six years of service. No contributions were made to the plan in 1997, 1996 or 1995. 13. Rental Income The Company leases premises in its properties to tenants pursuant to lease agreements which provide for terms ranging generally from 5 to 25 years. The majority of leases provide for additional rents based on tenants' sales volume; however, such amounts earned by Agree historically have not been material. F - 17 As of December 31, 1997, the future minimum revenues for the next five years from rental property under the terms of all noncancellable tenant leases, assuming no new or renegotiated leases are executed for such premises, are as follows (in thousands): 1998 $ 16,503 1999 16,254 2000 15,776 2001 14,541 2002 13,611 Thereafter 142,972 -------- Total $219,657 ========
Of the future minimum rentals, approximately 38% of the above total is attributable to Kmart Corporation and approximately 31% is attributable to Borders, Inc. Kmart's principal business is general merchandise retailing through a chain of discount department stores, and Borders is a major operator of book superstores in the United States. 14. Lease Commitments The Company has entered into certain land lease agreements for four of its properties. As of December 31, 1997, approximate future annual lease commitments under these agreements are as follows:
Year Ended December 31, - --------------------------------------- 1998 $ 547,860 1999 547,860 2000 583,610 2001 586,860 2002 589,649 Thereafter 7,758,988 =========
F - 18 Agree Realty Corporation Notes to Consolidated Financial Statements - ----------------------------------------------------------------------------- 15. Interim Results (Unaudited) The following summary represents the unaudited results of operations of the Company, expressed in thousands except per share amounts, for the periods from January 1, 1996 through December 31, 1997:
Three Months Ended - ----------------------------------------------------------------------------------- 1997 March 31, June 30, September 30, December 31, - ----------------------------------------------------------------------------------- Revenues $4,555 $4,476 $4,502 $4,701 ====== ====== ====== ====== Income before minority interest $1,138 $1,479 $1,672 $1,874 Minority interest 219 247 215 262 ------ ------ ------ ------ Net Income $ 919 $1,232 $1,457 $1,612 ====== ====== ====== ====== Net Income Per Share $ .34 $ .36 $ .34 $ .37 ====== ====== ====== ====== Three Months Ended - ----------------------------------------------------------------------------------- 1996 March 31, June 30, September 30, December 31, - ----------------------------------------------------------------------------------- Revenues $3,866 $4,026 $4,017 $4,382 ====== ====== ====== ====== Income before minority interest $1,010 $1,064 $ 845 $1,714 Minority interest 196 207 164 332 ------ ------ ------ ------ Net Income $ 814 $ 857 $ 681 $1,382 ====== ====== ====== ====== Net Income Per Share $ .31 $ .32 $ .26 $ .52 ====== ====== ====== ======
F - 19 AGREE REALTY CORPORATION SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 - -----------------------------------------------------------------------------
Column A Column B Column C Column D - -------- ------------ --------------------------- ------------- Costs Capitalized Subsequent to Initial Cost Acquisition --------------------------- ------------- Building and Building and Description Encumbrance Land Improvements Improvements - ------------------------------------------------------------------------------------ Completed Retail Facilities Borman Center, MI $ -- $ 550,000 $ 562,404 $ 1,066,115 Capital Plaza, KY -- 7,379 2,240,607 514,580 Charlevoix Commons, MI 3,981,600 305,000 5,152,992 26,718 Chippewa Commons, WI 5,103,840 1,197,150 6,367,560 164,783 Grayling Plaza, MI -- 200,000 1,778,657 -- Iron Mountain Plaza, MI -- 677,820 7,014,996 372,627 Ironwood Commons, MI -- 167,500 8,181,306 230,953 Marshall Plaza Two, MI 3,407,040 -- 4,662,230 10,764 North Lakeland Plaza, FL 7,850,740 1,641,879 6,364,379 342,435 Oscoda Plaza, MI -- 183,295 1,872,854 -- Perrysburg Plaza, OH -- 21,835 2,291,651 31,000 Petoskey Town Center, MI 5,577,600 875,000 8,895,289 5,985 Plymouth Commons, WI 4,811,520 535,460 5,667,504 170,476 Rapids Associates, MI 5,120,640 705,000 6,854,790 27,767 Shawano Plaza, WI 5,597,760 190,000 9,133,934 37,098 West Frankfort Plaza, IL -- 8,002 784,077 15,299 Winter Garden Plaza, FL 9,503,286 1,631,448 8,459,024 -- Omaha Store, NE 2,000,000 1,705,619 2,053,615 2,152 Wichita Store, KS 2,000,000 1,039,195 1,690,644 24,666 Santa Barbara Store, CA 1,296,459 2,355,423 3,240,557 2,650 Column A Column E Column F Column G Column H - -------- --------------------------------------- ------------ ----------- ------------ Life on Which Gross Amount at Which Carried Depreciation at Close of Period in Latest --------------------------------------- Income Building and Accumulated Date of Statement Description Land Improvements Total Depreciation Construction is Computed - ------------------------------------------------------------------------------------------------------------- Completed Retail Facilities Borman Center, MI $ 550,000 $ 1,628,519 $ 2,178,519 $ 918,975 1977 40 Years Capital Plaza, KY 7,379 2,755,187 2,762,566 1,134,824 1978 40 Years Charlevoix Commons, MI 305,000 5,179,710 5,484,710 930,463 1991 40 Years Chippewa Commons, WI 1,197,150 6,532,343 7,729,493 1,218,622 1990 40 Years Grayling Plaza, MI 200,000 1,778,657 1,978,657 627,740 1984 40 Years Iron Mountain Plaza, MI 677,820 7,387,623 8,065,443 1,166,402 1991 40 Years Ironwood Commons, MI 167,500 8,412,259 8,579,759 1,366,641 1991 40 Years Marshall Plaza Two, MI -- 4,672,994 4,672,994 794,786 1990 40 Years North Lakeland Plaza, FL 1,641,879 6,706,814 8,348,693 1,838,390 1987 40 Years Oscoda Plaza, MI 183,295 1,872,854 2,056,149 654,206 1984 40 Years Perrysburg Plaza, OH 21,835 2,322,651 2,344,486 816,595 1983 40 Years Petoskey Town Center, MI 875,000 8,901,274 9,776,274 1,550,209 1990 40 Years Plymouth Commons, WI 535,460 5,837,980 6,373,440 1,042,759 1990 40 Years Rapids Associates, MI 705,000 6,882,557 7,587,557 1,239,200 1990 40 Years Shawano Plaza, WI 190,000 9,171,032 9,361,032 1,741,049 1990 40 Years West Frankfort Plaza, IL 8,002 799,376 807,378 310,534 1982 40 Years Winter Garden Plaza, FL 1,631,448 8,459,024 10,090,472 1,899,800 1988 40 Years Omaha Store, NE 1,705,619 2,055,767 3,761,386 109,206 1995 40 Years Wichita Store, KS 1,039,195 1,715,310 2,754,505 91,049 1995 40 Years Santa Barbara Store, CA 2,355,423 3,243,207 5,598,630 172,287 1995 40 Years
F - 20 AGREE REALTY CORPORATION SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 - -----------------------------------------------------------------------------
Column A Column B Column C Column D - -------- -------- ------------------------ ------------ Costs Capitalized Subsequent to Initial Cost Acquisition ------------------------ ----------- Building and Building and Description Encumbrance Land Improvements Improvements - ----------- ----------- ---- ------------ ------------ Monroeville, PA -- 6,332,158 2,249,724 -- Norman, OK -- 879,562 1,626,501 -- Columbus, OH 1,730,490 826,000 2,336,791 -- Aventura, FL -- -- 3,173,121 -- Boyton Beach, FL -- 3,103,942 2,043,122 -- Lawrence, KS 2,116,551 -- 3,000,000 -- Waterford, MI -- 971,009 1,562,869 -- ----------- ---------- ----------- ---------- Sub Total 60,097,526 26,109,676 109,261,198 3,046,068 ----------- ---------- ----------- ---------- Retail Facilities Under Development Chesterfield Township, MI -- 1,350,590 191,758 -- Grand Blanc, MI -- 298,076 46,825 -- Pontiac, MI -- 1,144,190 83,812 -- Rochester, MI -- -- 135,215 -- Tulsa, OK 1,728,050 1,050,000 31,041 -- ----------- ---------- ----------- ---------- 1,728,050 3,842,856 488,651 -- ----------- ---------- ----------- ---------- Total $ 61,825,576 $ 29,952,532 $109,749,849 $ 3,046,068 =========== ========== =========== ========== Column E Column F Column G Column H - ------------------------------------------ -------- ------------- ------------- Life on Which Depreciation Gross Amount at Which Carried in Latest at Close of Period Income - ------------------------------------------ Building and Accumulated Date of Statement Land Improvements Total Depreciation Construction is Computed ---- ------------ ----- ------------ ------------ ----------- 6,332,158 2,249,724 8,581,882 63,021 1996 40 Years 879,562 1,626,501 2,506,063 50,634 1996 40 Years 826,000 2,336,791 3,162,791 111,967 1996 40 Years -- 3,173,121 3,173,121 135,519 1996 40 Years 3,103,942 2,043,122 5,147,064 55,147 1996 40 Years -- 3,000,000 3,000,000 3,210 1997 40 Years 971,009 1,562,869 2,533,878 -- 1997 40 Years - ------------ ---------- ----------- ---------- -------- --------- 26,109,676 112,307,266 138,416,942 20,043,235 ----------- ---------- ----------- ---------- 1,350,590 191,758 1,542,348 -- N/A N/A 298,076 46,825 344,901 -- N/A N/A 1,144,190 83,812 1,228,002 -- N/A N/A -- 135,215 135,215 -- N/A N/A 1,050,000 31,041 1,081,041 -- N/A N/A ------------ ---------- ----------- ---------- -------- -------- 3,842,856 488,651 4,331,507 -- =========== ========== =========== ========== $ 29,952,532 $112,795,917 $142,748,449 $ 20,043,235
F-21 AGREE REALTY CORPORATION NOTES TO SCHEDULE III DECEMBER 31, 1997 - ----------------------------------------------------------------------------- 1) Reconciliation of Real Estate Properties The following table reconciles the Real Estate Properties from January 1, 1995 to December 31, 1997:
1997 1996 1995 ---- ---- ---- Balance at January 1 $ 132,474,243 $ 118,360,268 $ 96,852,137 Construction costs 10,319,206 14,173,975 21,508,131 Sales (45,000) (60,000) -- ------------- ------------- ------------- Balance at December 31 $ 142,748,449 $ 132,474,243 $ 118,360,268 ============= ============= =============
2) Reconciliation of Accumulated Depreciation The following table reconciles the accumulated depreciation from January 1, 1995 to December 31, 1997:
1997 1996 1995 ---- ---- ---- Balance at January 1 $ 17,339,353 $ 14,792,193 $ 12,548,826 Current year depreciation expense 2,703,882 2,547,160 2,243,367 ------------- ------------- ------------- Balance at December 31 $ 20,043,235 $ 17,339,353 $ 14,792,193 ============= ============= =============
3) Tax Basis of Buildings and Improvements The aggregate cost of Building and Improvements for federal income tax purposes is equal to the cost basis used for financial statement purposes. F - 22 EX-10.19 2 ============================================================================= SECOND AMENDMENT TO LINE OF CREDIT AGREEMENT AND AMENDMENT AND AFFIRMATION OF LOAN DOCUMENTS between AGREE LIMITED PARTNERSHIP And AGREE REALTY CORPORATION and MICHIGAN NATIONAL BANK INDIVIDUALLY AND AS AGENT FOR THE LENDERS and NBD BANK and LASALLE NATIONAL BANK AS LENDERS Dated as of November 17, 1997 ============================================================================= SECOND AMENDMENT TO LINE OF CREDIT AGREEMENT THIS SECOND AMENDMENT TO LINE OF CREDIT AGREEMENT ("Second Amendment"), dated as of November 17, 1997, is made among AGREE LIMITED PARTNERSHIP, a Delaware limited partnership ("Borrower"), AGREE REALTY CORPORATION, a Maryland corporation (the "Company"), and MICHIGAN NATIONAL BANK, a national banking association ("MNB"), individually and as Agent for the Lenders ("Agent"), and NBD BANK, a Michigan banking corporation ("NBD"), and LASALLE NATIONAL BANK, a national banking association ("LaSalle"), as Lenders (such term and other capitalized terms used but not defined in this Second Amendment are defined in Section 1 of the Agreement (as defined below)). RECITALS Borrower, the Company and Lenders entered into a Line of Credit Agreement dated as of November 14, 1995, as amended by First Amendment thereto dated as of August 7, 1997 ("Original Agreement") whereby Lenders made available to Borrower a line of credit loan facility in the maximum amount of $50,000,000. Borrower and Lenders now wish to amend certain terms and provisions of the Original Agreement. AGREEMENT In consideration of the terms and conditions contained herein, and of any loans, advances, or extensions of credit previously, now or hereafter made to Borrower by the Lenders, the parties hereto hereby agree as follows: A. AMENDMENT OF ORIGINAL AGREEMENT. 1. Amendment to Section 2.6. The last sentence of Section 2.6(a) of the Original Agreement is hereby deleted in its entirety and replaced with the following: "Notwithstanding the foregoing, at any time that Kmart's debt rating by both Moody's and S&P is greater than "A-", each Base Rate Margin and each LIBOR Margin set forth in the chart above shall be decreased by .125%. Any further decrease in the Base Rate Margin or LIBOR Margin shall be at the sole discretion of the Required Lenders." C. REPRESENTATIONS AND WARRANTIES. Borrower and Guarantor represent, warrant, covenant and agree that as of the date hereof: 1. Authority. Each of Borrower and the Company has full power, authority and legal right to enter into this Second Amendment, and the execution, delivery and performance by Borrower and the Company of this Second Amendment: (a) has been duly authorized by all necessary partnership or corporate action, as applicable, of Borrower and the Company; (b) do not and will not, by lapse of time, the giving of notice or otherwise, contravene the terms of Borrower's or the Company's respective partnership agreement or certificate, articles of incorporation or bylaws or of any indenture, agreement or undertaking to which Borrower or the Company is a party or by which Borrower or Guarantor is or any of their respective property are bound; (c) do not and will not require any governmental consent, registration or approval; (d) do not and will not, by lapse of time, the giving of notice or otherwise, contravene any material contractual or governmental restriction to which Borrower or the Company, or any of their respective property may be subject; and (e) do not and will not, except as contemplated herein, result in the imposition of any lien, charge, security interest or encumbrance upon any property of Borrower or the Company under any existing indenture, mortgage, deed of trust, loan or credit agreement or other material agreement or instrument to which Borrower or the Company is a party or by which Borrower or the Company or any of their respective property may be bound or affected. 2. Binding Effect. This Second Amendment is the legal, valid and binding obligation of Borrower and Guarantor and is enforceable against Borrower and Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by equitable principles (whether or not any action to enforce such document is brought at law or in equity). 3. Agreement Representations and Warranties. The warranties and representations of Borrower and Guarantor, as applicable, contained in the Agreement and the other Loan Documents are true, correct and complete on and as of the date hereof. 4. Default. No Event of Default or Default has occurred and is continuing. C. MISCELLANEOUS. 1. Section Titles. The section titles contained in this Second Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties. 2. Parties. Whenever in this Second Amendment reference is made to any of the parties hereto, such reference shall be deemed to include, wherever applicable, a reference to the successors and assigns of the Borrower, the Company, Agent and Lenders. 3. References. Any reference to the Agreement contained in any notice, request, certificate, or other document executed concurrently with or after the execution and delivery of this Second Amendment shall be deemed to include this Second Amendment unless the context shall otherwise require. 4. Continued Effectiveness. Notwithstanding anything contained herein, the terms of this Second Amendment are not intended to and do not serve to effect a novation as to the Agreement. The parties hereto expressly do not intend to extinguish the Agreement; instead, it is the express intention of the parties hereto to reaffirm Borrower's Obligations created under the Agreement, as amended by this Second Amendment. 5. Counterparts. This Second Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so -2- executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 6. Release of Claims; Limitation of Liability. In consideration of the Lenders entering into this Second Amendment, Borrower and the Company do each hereby release and discharge Agent and each Lender of and from any and all claims, harm, injury, and damage of any and every kind, known or unknown, legal or equitable, which Borrower or the Company have against the Agent and each Lender through the date hereof. Borrower and the Company confirm to Agent and the Lenders that they have reviewed the effect of this release with competent legal counsel of their choice, or have been afforded the opportunity to do so, prior to execution of this Second Amendment and each acknowledge and agree that Agent and each Lender is relying upon this release in entering into this Second Amendment. No claim may be made by Borrower, the Company, or any other Person against Agent or any Lender or the Affiliates, directors, officers, employees, attorneys or agent of any of such Persons for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by the Agreement or any other Transactions, or any act, omission or event occurring in connection therewith; and Borrower and the Company hereby waive, release and agree not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 7. Entire Agreement. This Second Amendment represents the entire agreement between the parties hereto relating hereto and may not be altered or modified in any respect, except upon the execution by the parties hereto of a written document or instrument so providing. IN WITNESS WHEREOF, this Second Amendment has been duly executed as of the day and year first above written. AGREE LIMITED PARTNERSHIP, a Delaware limited partnership By: AGREE REALTY CORPORATION, its sole general partner, a Maryland corporation By: /s/ Richard Agree ----------------------- Name: Richard Agree Title: President AGREE REALTY CORPORATION, a Maryland corporation By: /s/ Richard Agree --------------------- Name: Richard Agree Title: President [SIGNATURES CONTINUED ON NEXT PAGE] -3- MICHIGAN NATIONAL BANK, a national banking association, as Agent and as Lender By: /s/ Sheila E. Maples ----------------------- Name: Sheila E. Maples Title: Vice President NBD BANK, N.A., a Michigan banking corporation, as Lender By: --------------------------- Name: Garry D. Boyer Title: First Vice President LASALLE NATIONAL BANK, a national banking association, as Lender By: ------------------------------ Name: Thomas Jeffrey Title: Vice President -4- MICHIGAN NATIONAL BANK, a national banking association, as Agent and as Lender By: ----------------------- Name: Sheila E. Maples Title: Vice President NBD BANK, N.A., a Michigan banking corporation, as Lender By: /s/ Kirk W. Anderson ------------------------- Name: Kirk W. Anderson Title: First Vice President LASALLE NATIONAL BANK, a national banking association, as Lender By: ------------------------- Name: Thomas Jeffrey Title: Vice President -4- MICHIGAN NATIONAL BANK, a national banking association, as Agent and as Lender By: ----------------------- Name: Sheila E. Maples Title: Vice President NBD BANK, N.A., a Michigan banking corporation, as Lender By: ------------------------- Name: Garry D. Boyer Title: First Vice President LASALLE NATIONAL BANK, a national banking association, as Lender By: /s/ Thomas Jeffrey ------------------------- Name: Thomas Jeffrey Title: Vice President -4- EX-27 3 ARTICLE 5 FDS FOR FORM 10-K
5 12-Mos DEC-31-1997 DEC-31-1997 $ 1,785,968 0 473,918 0 0 0 142,748,449 20,043,235 130,491,504 0 65,170,133 433 0 0 54,966,009 130,491,504 18,234,167 0 0 6,673,709 0 0 5,551,734 0 0 0 0 0 0 5,220,223 1.41 0.00
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